Rhode Island RPS Modeling
Steve Bernow and Alison Bailie, Tellus Institute
January 24,2002
Summary of Results
The analysis considered the effects of an RPS in Rhode Island – considering 3 different levels of the RPS (starting at 3% in 2005 and increasing to 10%, 15% or 20% by 2020). Due to concerns about potentially different future prices for natural gas, two RPS cases (15% and 20%) were analyzed with both higher and lower natural gas prices. All cases reflect the geographic scope allowing Rhode Island entities to procure generation attributes from a certified eligible plant located in upwind New York State, without requiring an associated energy import to New England through purchasing renewable energy credits (REC). This analysis does not separately capture
the credit trading for the maintenance tier (existing small hydro and
biomass), but rather focuses on the new tier. The impacts of the new tier will be larger than the impacts on the maintenance tier.
The key results from the analysis are the change in electricity prices/bills, the type of renewable generation predicted to be developed to meet the RPS, the carbon dioxide emission reductions and the overall costs and savings of the policy. The key results of the analysis are summarized below.
Electricity price and bill impacts of a RI RPS -- Assuming EIA natural gas price projections.
· Average electricity prices in RI in 2010 would increase by between 0.05¢/kWh to 0.10¢/kWh (depending on the level of the RPS requirements). These increases correspond to about 0.4% to 0.9% increases over the average total residential electricity price in 2000 (which is11.5¢/kWh)
· Electricity bills for the average residential consumer would increase by 36¢ to 63¢ per month in 2010 (depending on the level of the RPS requirements).
· Electricity price and bill increases are larger by 2020. – Price increases range from 0.10¢to 0.42¢/kWh (about 0.9% to 3.6% over the average total residential electricity price in 2000), while bill increases from 71¢ per month to $2.72 per month
· The RPS leads to lower natural gas bills because it causes overall natural gas demand to decline. The decrease in individual residential natural gas bills is small, but does somewhat counteract the increased electricity bills for RI customers.
Electricity price and bill impacts of a RI RPS -- Assuming higher and lower natural gas price projections.
· As expected, and RPS provides some degree of insurance in the event of higher fuel prices. The analysis with higher natural gas prices indicates that higher natural gas prices reduce the electricity price and bill impacts of the RPS. It is noteworthy that the increase in electricity and gas bills due to these higher natural gas prices themselves greatly outweighs the potential bill increases due the RPS.
· The analysis with lower natural gas prices indicates a small increases in the electricity price and bill impacts.
· Overall the RPS impacts are not very sensitive to the natural gas prices. This is partly because the avoided generation is composed of a mix of generation types including coal and petroleum.
Type of renewable generation development
· When we relax the constraint that generation outside of NE can only be eligible if associated with a bundled energy import into NE (as required under current NEPOOL GIS rules), we project that most of the renewable generation development will occur in New York State. This policy design allows Rhode Island retail suppliers to purchase renewable energy credits from New York without the extra costs of the bundling. The Massachusetts and Connecticut RPS do not allow retail suppliers to purchase renewable energy credits from New York State. The wind generation from NY that is available to meet the RI RPS is lower cost than the wind generation from NE that is available to meet the combined MA, CT and RI RPS requirements. Because this lower cost renewable generation is available to meet the RI RPS, it accounts for the majority of the new development resulting from the RI RPS.
· The Massachusetts and Connecticut RPS policies will lead to increased wind development within New England. This analysis indicates that the renewable energy credit prices for these states will be higher than in Rhode Island. Therefore wind developers in New England would sell credits to Massachusetts or Connecticut in order to obtain greater revenues than selling to Rhode Island.
· The wind generation from NY that is available to meet the RI RPS is lower cost than the wind generation from NE that is available to meet the combined MA, CT and RI RPS requirements.
Carbon Dioxide Emission Reductions
· If the RPS requirement in 2020 is 10% of total electricity generation, only small carbon dioxide emission reductions occur.
· If the RPS requirement in 2020 is 15% or 20% of total electricity generation in 2020, carbon dioxide reductions would range from 230 to 370 thousand tonnes of carbon per year – these levels are very large for a single policy, about 17% to 25% of the reductions required to meet the Governors and Premiers target.
· The emission reductions do not increase linearly with the RPS targets because different types of generation are avoided and some increased owing to differences in heat rates and the carbon-intensities of fuels, the reliability/capacity contributions of wind version fossil capacity, the impacts on the economics of Canadian imports, the impacts on the economics of retirements. Note that the RPS is not designed with a primary goal of reducing carbon dioxide emissions and some counterintuitive results occur, since various interacting effects are occurring at the same time.
Overall costs and savings
· The societal impacts of a Rhode Island RPS policy range from net savings to net costs – depending on the geographic range chosen for the analysis [i.e. many of the savings are distributed – small individual drops in electricity and natural prices for the entire usage of all customers throughout the region]
· Increasing the RPS requirement in 2020 from 15% to 20% significantly increases the carbon dioxide emission reductions. A 20% RPS will have greater electricity price increases than the 15% RPS and will have higher costs to society. However the savings to society also increase (mainly decreased costs of fuel) so the net costs of the 20% RPS may be lower than the net costs of the 15% RPS. The cost per tonne of carbon reduced is lower in RPS 20% case.
Analytical Approach
For this analysis, we used the National Energy Modeling System (NEMS) which is the primary energy forecasting and policy analysis model developed and used by the Energy Information Administration (a branch of the U.S. Department of Energy). NEMS models electricity demand/supply interactions by dividing the US into 13 National Electricity Reliability Council (NERC) regions, some of which embody or approximate power pools. The model ensures that supplies are developed and dispatched to meet the demands in each region, taking account of system reliability, the capital, fuel and O&M costs of new power plant options, the operating costs of existing units, the efficiencies and outage rates of all power plants, transmission and distribution system costs and losses, inter-regional sales and purchases, state renewable energy requirements, and national and regional pollution cap and trade systems. For each region, NEMS provides information on:
· Amount and type of electricity generation, including non-utility generation, fuel use, imports and exports,
· Carbon dioxide, SO2 , NOx, and mercury emissions and
· costs for new capital investments, fuel and operations, transmission and distribution.
The relevant NERC regions for this analysis were New England and New York state.
We used NEMS to simulate cases for three different levels of Rhode Island RPS, along with the RPS requirements for Massachusetts, Connecticut, and Maine. These three states have existing RPS requirements but often the levels have only been established for years up to 2010. When required, we assumed requirements that followed existing legislation as much as possible. Table 1 shows the RPS requirements for each state and for the three Rhode Island RPS cases analyzed in this analysis This analysis does not separately capture the credit trading for the maintenance tier (existing small hydro and biomass), but rather just for the new tier.
Table 1 RPS requirements (percent targets)
Maine / Connecticut / Massachusetts / Rhode IslandClass I / Class II / New / Existing / new and existing
RPS 20% / RPS 15% / RPS 10%
2003 / 30%
2004 / 30% / 0.5% / 5.5% / 1.0% / 5.0%
2005 / 30% / 0.8% / 5.5% / 1.5% / 5.0% / 3.0% / 3.0% / 2.5%
2006 / 30% / 1.0% / 5.5% / 2.0% / 5.0% / 4.0% / 3.5% / 3.0%
2007 / 30% / 1.5% / 5.5% / 2.5% / 5.0% / 5.0% / 4.0% / 3.5%
2008 / 30% / 2.0% / 6.0% / 3.0% / 5.0% / 6.0% / 4.8% / 4.0%
2009 / 30% / 2.5% / 6.0% / 3.5% / 5.0% / 7.0% / 5.5% / 4.5%
2010 / 30% / 3.0% / 6.0% / 4.0% / 5.0% / 8.0% / 6.3% / 5.0%
2011 / 30% / 4.0% / 7.0% / 5.0% / 5.0% / 9.0% / 7.0% / 5.5%
2012 / 30% / 4.0% / 7.0% / 6.0% / 5.0% / 10.0% / 7.8% / 6.0%
2013 / 30% / 4.0% / 7.0% / 7.0% / 5.0% / 11.0% / 8.5% / 6.5%
2014 / 30% / 4.0% / 7.0% / 8.0% / 5.0% / 12.0% / 9.3% / 7.0%
2015 / 30% / 4.0% / 7.0% / 9.0% / 5.0% / 13.0% / 10.0% / 7.5%
2016 / 30% / 4.0% / 7.0% / 10.0% / 5.0% / 14.0% / 11.0% / 8.0%
2017 / 30% / 4.0% / 7.0% / 10.0% / 5.0% / 15.5% / 12.0% / 8.5%
2018 / 30% / 4.0% / 7.0% / 10.0% / 5.0% / 17.0% / 13.0% / 9.0%
2019 / 30% / 4.0% / 7.0% / 10.0% / 5.0% / 18.5% / 14.0% / 9.5%
2020 / 30% / 4.0% / 7.0% / 10.0% / 5.0% / 20.0% / 15.0% / 10.0%
Using the base case from the Annual Energy Outlook (AEO2002) we estimated the electricity demand by state and converted the RPS requirement in Table 1 into generation requirements, shown in table 2 for Maine Connecticut and Massachusetts. Table 3 shows the RPS requirements for Rhode Island with the upper limit for generation from existing plants plus the new generation requirements for each case.
Table 2 RPS requirements (GWh)
Maine / Connecticut / MassachusettsClass I / Class II / New / Existing
2003 / 4,036 / 493 / 2,466
2004 / 4,098 / 162 / 1,783 / 751 / 2,504
2005 / 4,155 / 246 / 1,807 / 1,015 / 2,539
2006 / 4,224 / 334 / 1,838 / 1,291 / 2,581
2007 / 4,283 / 508 / 1,863 / 1,570 / 2,617
2008 / 4,344 / 687 / 2,062 / 1,858 / 2,654
2009 / 4,410 / 872 / 2,093 / 2,156 / 2,695
2010 / 4,474 / 1,062 / 2,123 / 2,734 / 2,734
2011 / 4,539 / 1,077 / 2,154 / 3,328 / 2,774
2012 / 4,605 / 1,091 / 2,182 / 3,933 / 2,809
2013 / 4,664 / 1,104 / 2,207 / 4,547 / 2,842
2014 / 4,718 / 1,116 / 2,232 / 5,174 / 2,874
2015 / 4,772 / 1,128 / 2,256 / 5,810 / 2,905
2016 / 4,823 / 1,138 / 2,277 / 5,863 / 2,932
2017 / 4,868 / 1,149 / 2,298 / 5,919 / 2,959
2018 / 4,914 / 1,160 / 2,320 / 5,975 / 2,988
2019 / 4,960 / 1,171 / 2,342 / 6,032 / 3,016
2020 / 5,007 / 1,182 / 2,364 / 6,088 / 3,044
Table 3 RPS requirements (GWh) – Rhode Island
existing (max) / New (if existing = max)RPS 20% / RPS 15% / RPS 10%
2005 / 142 / 119 / 119 / 75
2006 / 145 / 210 / 166 / 121
2007 / 148 / 304 / 214 / 169
2008 / 151 / 402 / 287 / 218
2009 / 153 / 504 / 363 / 269
2010 / 156 / 609 / 442 / 322
2011 / 158 / 712 / 519 / 374
2012 / 159 / 817 / 597 / 426
2013 / 161 / 923 / 677 / 480
2014 / 162 / 1,031 / 758 / 534
2015 / 164 / 1,142 / 840 / 589
2016 / 166 / 1,254 / 950 / 645
2017 / 167 / 1,419 / 1,061 / 703
2018 / 169 / 1,587 / 1,174 / 761
2019 / 170 / 1,757 / 1,288 / 820
2020 / 172 / 1,931 / 1,405 / 879
Calculation of Rate Impacts
The RPS will increase electricity rates in Rhode Island. The amount of the increase depends on the additional cost of the renewable generation available to meet the RPS over the cost of the fossil fuel generation that this renewable generation would displace (or the incentive required by renewable electricity suppliers to make their generation competitive over other options). This additional cost is referred to as the Renewable Energy Credit and is expressed in cents/kWh. Note that different generators will require different levels of incentives. For example, for a given avoided fossil generation, a good wind site, close to transmission lines would require a relatively small incentive, while wind sites with lower wind potential or more difficulty linking to transmission lines or for biomass generation with high fuel costs, would require a higher incentive. The renewable energy credit reflects the highest incentive required to meet the renewable generation target in that year.
Retail electricity suppliers that need to purchase renewable credits from other suppliers will pass the cost of these purchases to the consumers through electricity prices. The amount paid by retail suppliers is equal to the amount of renewable generation required by the supplier (total load * RPS target %) multiplied by the price of a renewable energy credit in that year. So if a retail supplier sells 100,000 MWh in one year in Rhode Island and the RPS target is 10% in that year, the supplier must hold 10% * 100,000 MWh = 10,000 MWh of renewable energy credits. If the price of a credit is 1.2 cents/kWh, the supplier will spend 1.2 cents/kWh * 10,000 MWh = $120,000. The supplier will pass this cost back to the consumer through increasing prices by $120,000 / 100,000 MWh = $1.2 / MWh or 0.12 cents/kWh. So in this example, rates would increase by 0.12 cents/kWh.
The full calculation simplifies to:
Increase in rates = renewable credit price * RPS target (%)